MNI Riksbank Preview - Sep 2021: Flat repo rate path?

Executive Summary

• The September Riksbank meeting and accompanying Monetary Policy Report will be watched for any clues of a hawkish pivot.
• The main metric to watch will be the Riksbank's repo rate path. In recent meetings (including the last meeting in July), the repo rate path has been left at zero throughout the policy horizon through to Q3-24. The September meeting will not extend the forecast profile and will continue to forecast through Q3-24 rather than adding an extra quarter. The most effective way for the Riksbank to convey a message that normality is returning would be to add some probability of a rate hike into the Q3-24 projection.
• The MNI Riksbank preview includes summaries of 13 sell side views.

MNI Riksbank Preview - Sep 2021.pdf

The September Riksbank meeting and accompanying Monetary Policy Report will be watched for any clues of a hawkish pivot.

The main metric to watch will be the Riksbank's repo rate path. In recent meetings (including the last meeting in July), the repo rate path has been left at zero throughout the policy horizon through to Q3-24. The September meeting will not extend the forecast profile and will continue to forecast through Q3-24 rather than adding an extra quarter. The most effective way for the Riksbank to convey a message that normality is returning would be to add some probability of a rate hike into the Q3-24 projection.

This is seen as a risk, but not a base case, in almost every sell-side preview that we have read. GDP growth has come in higher than expected both domestically and internationally. However, concerns over the delta variant going into winter have intensified somewhat. Against this backdrop, inflation has been higher than expected. The Riksbank had forecast CPIF at 1.43% for August (2.36% actual, 93bp higher) and forecast CPIF excluding energy at 0.95% (1.39% actual, 44bp higher). The recent commentary from Ingves, Floden and Skingsley suggest that the Riksbank continue to see the pickup in inflation as transitory but it is likely that we will see an increase in the short-term inflation forecasts.

Most expect the Riksbank will maintain caution amid the still high uncertainty ahead of winter, having been burnt in the past by forecasting higher rates but not being able to follow through with their plans. Consensus now seems to be looking towards the November meeting to include a probability of a hike in Q4-24 (as the extra quarter is added to the forecast horizon).

Regarding QE, a commitment to continuing the announced schedule of asset purchases into year end and to reinvest maturing proceeds therefore is expected to be reiterated. There is an outside chance of an announcement about whether the reinvestments will proceed at a constant pace (or whether there will be any front-loading of 2022 reinvestments). And also there could be an announcement regarding the breakdown of reinvestments across different fixed income assets. However, again these are more likely to come in November.